Case Summary
| Citation | Subhra Mukherjee v. Bharat Coking Coal Ltd.(2000) 3 SCC 312 |
| Keywords | |
| Facts | The suit property, a bungalow and a land, was owned by M/s Nichitpur Coal Company Pvt. ltd. and sold to appellants for consideration of Rs. 5000. But appellant paid 7000 Rs. The company had entered into a transaction involving the sale of a bungalow and a piece of land to the wives of its directors. The property’s sale was called into question, with allegations that it was an attempt to prevent the property from vesting in the Central Government under the Coal Mines (Nationalization) Act, 1973. The sale of the property was the subject of scrutiny. BCCL purportedly executed a resolution to sell the property to the wives of its directors. The claimants challenged the transaction, contending that it was a sham and collusive sale aimed at evading the property’s vesting in the Central Government as per the Coal Mines (Nationalization) Act, 1973. The transaction was not a bona fide sale, but rather a facade. They contended that the resolution to sell was antedated, and the transaction was a device employed by the directors to retain control over the property while giving an appearance of ownership transfer. |
| Issues | Whether the transaction in question is a bona fide and genuine one or is a sham, bogus and fictitious transaction as held by the trial court ? Whether in view of Section 3 (1) read with Section 2(h)(xi) and the entry at Serial No. 133, in the Schedule to the Act, the property in question stood transferred to and vested in the Central Government free of all encumbrances, on the appointed day under the Coal Mines (Nationalization) Act.”? |
| Contentions | Petitioner contended that the transaction involving the sale of immovable property to the wives of BCCL’s directors was not a genuine sale but rather a sham transaction. She pointed out that the sale consideration mentioned in the resolution differed from the actual payment received. the directors’ wives did not exercise their rights as purchasers over the property until the date of the lawsuit. This indicated that the property continued to be controlled and maintained by the coal company, raising questions about the legitimacy of the transaction. Respondent’s contention They argued that they had followed proper documentation processes, including passing a resolution to sell, creating receipts for consideration, and executing an agreement to sell and a sale deed. There was no concrete evidence to support the claim of a sham transaction. |
| Law Points | The court addressed the discrepancies in the documentation, including the inconsistency in sale consideration and the possible antedating of the resolution. These factors raised suspicions about the authenticity and legitimacy of the transaction. The court also considered the crucial aspect of control retention by BCCL over the property even after the sale. The fact that the wives of the directors did not exercise their rights over the property until the lawsuit and that the property remained under the company’s use added weight to the claim that the transaction was not bona fide. The court invoked the principle of piercing the corporate veil, which allows the court to disregard the separate legal identity of a company and look into the real substance and parties behind a transaction. In this context, the court sought to determine whether the transaction was truly between the directors and their wives, despite the company being used as an intermediary. The court concluded that the transaction was indeed a sham. The discrepancies in documentation, coupled with the evidence of control retention and lack of independent action by the directors’ wives, led the court to believe that the transaction was not genuine. The court noted that the sale was designed to avoid the property’s vesting in the Central Government under the Coal Mines (Nationalization) Act, 1973. As a result of its findings, the court held that the transaction was not bona fide, and the property continued to be the property of BCCL. Consequently, under the Coal Mines (Nationalization) Act, of 1973, the property vested in the Central Government upon nationalization. |
| Judgement | Court held that the suit property remained the property of the company and therefore, it vested in the central government under section 3(1) of the Act of 1973. |
| Ratio Decidendi & Case Authority |
Full Case Details
S.S.M. QUADRI, J. – 2. The suit property was owned by M/s Nichitpur Coal Company
Private Limited (hereinafter referred to as “the Company”), which is registered under the
Indian Companies Act. By a resolution of the Board of Directors of the Company dated 21-9-
1970, it was resolved to sell the suit property to the appellants for a consideration of Rs. 5000.
However, the appellants paid Rs. 7000 to one of the Directors under receipt dated 30-12-
- An agreement to sell the suit property to the appellants for Rs. 7000 (Rs. 5000 as
consideration of the bungalow and Rs. 2000 as price of the land) was executed by the
Company on 3-1-1971. The Company executed the sale deed in their favour on 20-03-1972. - The Coal Mines (Nationalisation) Act, 1973 came into force on 1-5-1973 and from that
date the right, title and interest of the owners in relation to the coal mines specified in the
Schedule appended to the Act of 1973 (the said Company is mentioned at Serial No. 133 of
the Schedule) vested in the Central Government (“the vested properties”). Thereafter under
the order of the Central Government, the vested properties stood transferred to and vested in
the government company named M/s Bharat Coking Coal Ltd. (“BCCL”). As the appellants
did not hand over the possession of the suit property to BCCL, it initiated proceedings under
the Public Premises (Eviction of Unauthorised Occupants) Act, 1971 (“the PP Act”) for their
eviction from the suit property on 15-10-1976. - Being faced with eviction proceedings under the PP Act, the appellants filed the said
suit against BCCL for declaration of their rights in, title to and interest over the suit property.
The suit was resisted by BCCL, inter alia, on the ground that with effect from the appointed
date the suit property vested in it and that the alleged sale transaction in favour of the
appellants was sham, collusive, without any consideration and was brought into existence to
avoid the effect of vesting of the suit property under the Act of 1973. It was also stated that
the appellants are the wives of the Directors of the Company, who are real brothers. On
appreciation of the evidence placed before it, the trial court held that the appellants got no title
to the suit property and were, therefore, not entitled to any relief and thus dismissed the suit
on 22-9-1977. Aggrieved by the judgment and decree of the trial court, the appellants filed
Title Appeal No. 147 of 1977 before the learned District Judge, Dhanbad. On reappraisal of
the evidence on record, the learned District Judge allowed the appeal and set aside the
judgment and decree of the trial court and decreed the suit of the appellants, as prayed for on
6-10-1978. BCCL then unsuccessfully carried the matter, in second appeal, before the High
Court of Judicature at Patna (Ranchi Bench). The judgment and decree of the High Court
dismissing the second appeal on 7-10-1985, was challenged by BCCL in Civil Appeal No.
838 of 1986 in this Court. On 17-8-1993, this Court set aside the impugned judgment and
decree of the High Court and remitted the matter to the High Court to decide the following
two points:
“(1) whether the transaction in question is a bona fide and genuine one or is a sham,
bogus and fictitious transaction as held by the trial court; and
(2) whether in view of Section 3 (1) read with Section 2(h)(xi) and the entry at Serial
No. 133, in the Schedule to the Act, the property in question stood transferred to and
vested in the Central Government free of all encumbrances, on the appointed day under
the Coal Mines (Nationalisation) Act.”
It was observed that the result of the second point would depend on the decision of Point 1.
- However, after remand, in view of the submission made by the learned counsel for
BCCL that Point 2 was covered by the judgment of this Court in Bharat Coking Coal Ltd. v.
Madanlal Agrawal [(1997) 1 SCC 177] the High Court decided it first. On Point 1 the High
Court restored the judgment of the trial court holding that the transaction of sale between the
appellants and the Company was sham and bogus and was entered into to avoid the vesting of
the suit property in the Central Government under Section 3(1) of the Act of 1973 and thus
allowed the second appeal filed by BCCL on 11-11-1997. That judgment and decree are
under challenge in this appeal. - Mr. A.K. Srivastava, learned senior counsel appearing for the appellants pointed out
that contrary to the observation of this Court, the High Court has proceeded to decide Point 2
first and that resulted in prejudice to the appellants. He argued that the High Court found that
the appellants had proved three facts, namely, (i) the Board of Directors of the Company
passed a resolution on 21-9-1970 to sell the suit property in favour of the appellants; (ii) the
appellants paid Rs. 7000 to one of the Directors of the Company under receipt dated 30-12-
1970; and (iii) the sale deed was executed by the Company on 20-3-1972. He invited our
attention to the evidence of PW 8, the accountant of the Company, to prove passing of the
resolution, to substantiate payment of Rs. 7000 and its entry in the books of accounts of the
Company and the execution of the sale deed dated 20-3-1972 by the Company. In view of
these proved facts and in the absence of any rebuttal evidence, it was contended, the High
Court ought to have held that the sale of the suit property was genuine and valid. - Mr. Anip Sachthey, learned counsel appearing for the respondents has contended that
the suit property is in the midst of the colliery and that the Directors of the Company and the
appellants are no other than husbands and wives and that the transaction was entered into to
save the suit property from vesting in the Central Government under Section 3 of the Act of
1973. - We have perused the deposition of PW 8 accountant and the impugned judgment.
There can be no doubt that the High Court in para 13 of its judgment mentioned that the
resolution of the Company dated 21-9-1970, receipt evidencing payment of Rs. 7000 on 30-
12-1972 (Ext. 10), under which one of the Directors, the husband of Appellant 1, received the
said amount and the sale deed executed on 20-3-1972, had been proved by the appellants.
But, then the High Court also noted with approval the following circumstances, pointed out
by the first appellate court: firstly, the resolution dated 21-9-1970 was an ante-dated
document. Mr. Srivastava submitted that the government authorities were in possession of all
the records of the Company and they should have produced the original record to substantiate
the allegation that the resolution was ante-dated and in the absence of such record the High
Court was not justified in confirming the finding of the first appellate court. The fact remains
that the appellants themselves took no steps to summon the record from the custody of the
authority concerned. That apart, there is no mention of the resolution dated 21-9-1970 either
in the receipt (Ext. 10) signed by one of the Directors or in the agreement for sale of 3-1-1971
or in the sale deed dated 20-3-1972. On the basis of the intrinsic evidence, pointed out above,
the conclusion that the resolution was an ante-dated document, appears to be irresistible.
Secondly, it is pointed out by the High Court that though the resolution mentions the sale
consideration as Rs. 5000 there is no explanation as to why it was enhanced to Rs. 7000 for
which receipt was signed by one of the Directors of the Company. Thirdly, a more telling
aspect is that the appellants did not exercise their rights as purchasers over the suit property
till the date of the filing of the suit; the water and electricity connections were obtained during
the pendency of the suit by them; further till the date of vesting of the suit property under the
Act of 1973, it was maintained by the Company for the use of the Directors.
- It is rightly commented by the High Court that the agreement for sale of the suit
property is not a registered document; it recites that the suit property will be sold for Rs. 7000
even though the consideration of Rs. 7000 was paid on 30-12-1970 itself and neither the
agreement nor the sale deed is in terms of the resolution. - Two other aspects which have weighed with the High Court are: the transaction of
sale was between the husbands and the wives and that they had no independent source of their
income, which cannot be ignored altogether as irrelevant. - Mr. Srivastava submitted that undue emphasis was given to the fact that the Directors
of the Company were brothers and the appellants are their wives. He argued that the
Company is a separate legal entity which is independent of its Directors and shareholders and
repeatedly referred to the oft-quoted decision in Salomon v. Salomon & Co [(1897) AC 22].
The principle laid down in Salomon case more than a century ago in 1897 by the House of
Lords that the company is at law a different person altogether from the subscribers who have
limited liability, is the foundation of joint stock company and a basic incidence of
incorporation both under English law and Indian law. Lifting the veil of incorporation under
statutes and decisions of the courts is an equally settled position of law. This is more readily
done under American law. To look at the realities of the situation and to know the real state of
affairs behind the façade of the principle of the corporate personality, the courts have pierced
the veil of incorporation. Where a transaction of sale of its immovable property by a company
in favour of the wives of the Directors is alleged to be sham and collusive, as in the instant
case, the court will be justified in piercing the veil of incorporation to ascertain the true nature
of the transaction as to who were the real parties to the sale and whether it was genuine and
bona fide or whether it was between the husbands and the wives behind the façade of separate
entity of the company. That is what was done by the High Court in this case. - There can be no dispute that a person who attacks a transaction as sham, bogus and
fictitious must prove the same. But a plain reading of Question 1 discloses that it is in two
parts; the first part says, “whether the transaction in question is a bona fide and genuine one”
which has to be proved by the appellants. It is only when this has been done that the
respondent has to dislodge it by proving that it is a sham and fictitious transaction. When the
circumstances of the case and the intrinsic evidence on record clearly point out that the
transaction is not bona fide and genuine, it is unnecessary for the court to find out whether the
respondent has led any evidence to show that the transaction is sham, bogus or fictitious.
- For the afore-mentioned reasons, we are unable to say that the High Court erred in
taking the view that the sale, in favour of the appellants, is neither bona fide nor genuine and
confers no right on them. - In view of the finding on Point 1, the suit property remained the property of the
Company and, therefore, it vested in the Central Government under Section 3(1) of the Act of - This is what the High Court held on Point 2, which is supported by the judgment of
this Court in Bharat Coking Coal Ltd. v. Madanlal Agarwal. In the result, we find no merit
in the appeal. It is accordingly dismissed.
